Fed Tightening Cycles & USD Performance

by Ashraf Laidi
Sep 7, 2015 15:53 | 7 Comments

Is the peak of the US dollar behind us?  Depending on your USD measure of choice, the dollar may have already peaked, when using EUR and JPY, the two largest and most liquid currencies aside from the greenback. If the bulk of the USD bull market starting in summer 2014 was based on heightened expectations of a Fed hike, then would an actual Fed hike signal the peak of the US dollar? Here is our analysis on the response of the US dollar to each of the last three Fed tightening cycles (1994-1995, 1999-2000 and 2004-2006). One common theme was found.

Click To Enlarge
Fed Tightening Cycles & USD Performance - Fedfunds Usdx Sep 7 (Chart 1)

1994-1995 Tightening Cycle

As the Fed began raising rates in February 1994, the US dollar index wasted little time to fall more than 10% in the ensuing six months before stabilizing towards the end of the year and subsequently dropping an additional 7%. Among the main reasons to the USD selloff (despite the easy monetary policy pursued by Germany and Japan) was the resulting bond market crash following Greenspan's tightening, which eroded demand for the US currency. The resulting 10% decline in US equity indices didn't help the greenback either. Despite seven Fed hikes in 1994, the USD lost 5%-15% against all major currencies, with the  exception of the CAD against which, it rallied 6%. In 1995, USD lost against all major currencies, except for GBP, JPY and AUD.

1999-2000 Tightening Cycle

The 1999-2000 Fed tightening cycle was the most positive for the greenback due to three main reasons: i) interest rates took off from a higher level of 5.00%, compared to 3.00% in 1999 and 1.00% in 2006; ii) the Clinton Administration's “strong  USD” policy consisted of rhetoric backed by US-bound global capital flows as the euro crashed during its first two years due to policy errors from the ECB; iii) US-Eurozone interest and yield differentials remained firmly in favour of the US. The “New Economy” espoused by Greenspan's low-inflation-high-growth paradigm made the US stock market the only game in town as US technology stocks served as a magnet for global capital flows and emerging markets (Brazil, Russia and Asia) broke down.

2004-2006 Tightening Cycle

The Fed's 125-bps in rate hikes of 2004 didn't prevent the USD from having one of its worst years in recent history, falling against all ten top-traded currencies. Already in a 2-year bear market, the greenback went from bad to worse due to a swelling trade and budget deficit.  A nascent global recovery, led by commodities and their currencies was a major negative for the buck. 2005 proved the only positive exception for the US dollar in the 2 ½ years of Fed tightening due to a temporary US tax law encouraging US multinationals to repatriate profits. But the USD rally fizzled in December 2005 over the ensuing two years, turning into a prolonged USD selloff, courtesy of a secular bull markets in commodities and higher-yielding currencies elsewhere.

Today

The USD appreciation from last summer into early spring 2015 is typical of pre-Fed hike rallies. If the Fed does tightening this autumn, will the greenback's gains could well fade away. Despite notable labour market gains, the inflation requirement remains in doubt. The 20% decline in oil since early May will further delay any recovery in price growth, which has prompted the Fed to drop its phrase in the FOMC statement that “energy prices have stabilized”.  

China's devaluation is increasingly becoming the biggest barrier to any Fed tighening due to the negative growth impact on the world economy, global price growth and financial markets stability, discussed widely in this website.  

It will be difficult for the Fed to raise rates this year if US crude oil remains below $48.00—The October-March decline has already triggered a chain reaction of broadening cuts in capital and labour expenditure from big oil and iron ore producers, which effectively cast a spell on the suppliers of these energy and mining companies.  And barely when oil began its spring time recovery, the declines emerged anew.

Fed hawks will ignore inflation and focus on unemployment, payrolls and wages. They will add that the non-accelerating inflation rate of unemployment aka equilibrium level of unemployment is at 5.3%-5.5%, matching the current unemployment rate of 5.3%.  Fed doves will point to the fact that inflation has remained below its 2.0% target for the last three years, while the true NAIRU stands a lower 5.0%.
Dissecting market and survey-based measures of inflation will become a popular sport in the months to come.

And finally, if the Fed does raise rates, it will most likely be one-&-done rate hike, owing to the deflationary pressures weighing down through commodities. At this juncture, the peak of the USD bull market is already behind us.

Comments (Showing latest 4 of 7) View All Comments
bensah5
Frankfurt, Germany
Posts: 0
2 days ago
Jul 17, 2019 11:13
Buy real registered drivers license (whatsapp 447448587349) visas,passport,Identity card ( vincentdocument4@gmail.com )
Did you know that you can now legally purchase a passport and receive citizenship of another country other than your own? Are you aware that thousands of people are just that year, and the number is growing? No matter

Contact us at:
Website:
http://www.genuinedocuments72hrs.com/ielts
http://www.genuinedocuments72hrs.com
http://www.genuinedocuments72hrs.com
http://www.genuinedocuments72hrs.com


Email:… ..vincentdocument4@gmail.com


Whatsapp: ………… ……… 447448587349


Whatsapp: ………………………… .. 447448587349


Buy drivers license online
Buy EU drivers license online
Buy UK/US drivers license online

website: http://www.genuinedocuments72hrs.com/driverLicences
http://www.genuinedocuments72hrs.com/ielts
http://www.genuinedocuments72hrs.com/documents


Buy passport online
Buy identity card online
Buy Visa online


website: http://www.genuinedocuments72hrs.com/visasOnline
http://www.genuinedocuments72hrs.com/noveltyPassports
http://www.genuinedocuments72hrs.com/residentPermit


Buy the residence permit Online
Buy / Get Citizenship Online
Buy documents online
joshwalker8879
California, United States
Posts: 0
31 days ago
Jun 18, 2019 6:45
Buy High Quality Undetectable Grade AA+ Counterfeit Banknotes For Sale [ Whats App:+14039080948 ]
Buy Passport & Counterfeit Banknotes WhatsApp+1(403)908-0948
Buy High Quality Fake Passport//ID Cards//Counterfeit Banknotes//IELTS//TOEFL [ Whats App:+14039080948 ]
[ ICQ:746820035 ] High Quality Undetectable Counterfeit Banknotes For Sale [ Whats App:+14039080948 ]
With over a billion of our products circulating around the world.
We offer only original high-quality counterfeit currency NOTES.
We ship worldwide and we also print and sell Grade A banknotes of over 52 currencies in the world.
Here is your chance to be a millionaire. Our money is perfectly reproduced,Indistinguishable to the eye and to the touch.
We are sending in various sizes, packed and hidden.
All our notes carries all the holograms and water marks and passes the light detector test.
We will deliver the money directly to your home without the interference of customs .
we have a Huge quantity ready in stock.
We use latest technology to produce our notes so that it looks 100% identical to the real note.
This thus implies all security features present in the real notes are present in the note we make.
Our team is made up of Quality IT technicians from Morocco, US, Russia, India, Korea and China etc We offer high quality counterfeit NOTES for all currencies.
I believe that any body who has even been ripped off because of counterfeit money buying went in for small amounts.
Shipping will take 3 to 4 days via DHL or DPD first class recorded delivery with tracking.
We do packaging with professionalism we give you tracking numbers too.
Why would you buy from us?
Our banknotes contain the following security features that make it to be genius and we have the best grade counterfeit in the world both Euro,Dollar, and pounds.
Security features of our bank notes? :
Intaglio printing// Watermarks//Security thread// See-through //register Special foil//special foil elements Iridescent stripe//shifting colors.
Our banknotes are printed on 80% cotton 20% cellulose paper which differs substantially from normal paper this notes er not home made they are industrial made.
This implies all security features present in the real notes are present in the note we make.
Contact us for more information using the information below:

(((((( BASIC CONTACT INFORMATION BELLOW ))))))
ICQ: [ 746820035 ]
WeChat ID:[ Bjwalker44 ]
Signal ID: [ Counterfeit44 ]
Threema ID: [ Z54BWMWT ]
Telegram: [ @Counterfeit403 ]
Phone Number Call/Text:..........[ WhatsApp: +14039080948 )
Whats-App Number:............[ WhatsApp: +14039080948 )
E-Mail Address:........[ Special-Papers@protonmail.ch ]

((MONEY)) FACE TO FACE BUSINESS
This bills are not home made but industrial and professional manufacturing. From High
Quality IT technicians from US,Russia,Korea and China We offer high quality COUNTERFEIT NOTES for the following currencies;
Buy Grade AA+ Counterfeit Euro--(EUR)
Buy Grade AA+ Counterfeit US Dollar--USD
Buy Grade AA+ Counterfeit DINAR--DNR
Buy Grade AA+ Counterfeit British Pound--GBP
Buy Grade AA+ Counterfeit Indian Rupee--INR
Buy Grade AA+ Counterfeit Australian Dollar--AUD
Buy Grade AA+ Counterfeit Canadian Dollar--CAD
Buy Grade AA+ Counterfeit Emirati Dirham--AED
Buy Grade AA+ Counterfeit Rand--ZAR
Buy Grade AA+ Counterfeit Swiss Franc--CHF
Buy Grade AA+ Counterfeit Chinese Yuan Renminbi--CNY
Buy Grade AA+ Counterfeit Malaysian Ringgit--MYR
Buy Grade AA+ Counterfeit Thai Baht--THB
Buy Grade AA+ Counterfeit New Zealand Dollar--NZD
Buy Grade AA+ Counterfeit Saudi Arabian Riyal--SAR
Buy Grade AA+ Counterfeit Qatari Riya--QAR

Tags:Tags:Tags:Tags:
Why using a special printing technique, several picture elements on the front of the banknote are identifiable by touch.
The guidelines on detecting counterfeit currency give a comparison of genuine and falsified security features.
- Our bills/notes bypass everything, counterfeit pens and machines.
- Can be used in banks but can be used else where same like normal money
- We have the best HOLOGRAMS AND DUPLICATING MACHINES
- UV: YES
Our bills have the Infrared Detection which makes our bills to bypass the UV machines,
Pen test and even eye detection buy counterfeit experts.
Our notes are AAA+ grade Quality.
We also sell and provide money cleaning services and solutions.
We sell AAA+ SSD Black Money Solution.
-Holograms and Holographic Strips
-Micro-Lettering
-Metallic Ink and Thread
-Watermarks
-IR Detection
-Ultra-violet features
-See through Features
-Different serial numbers
These features make our bills to be 100% undetected,100% safe and secure to use in any of these areas:
BANKS, CASINO, ATM, MONEY CHANGERS, STORES. They are 100% Undetected

DOCUMENTS:....
we can make you both real and
fake documents.
However, the real documents are more expensive than the fake because
it takes time, skill and contacts to get it done. Note that, the fake
is going to be 100% unique and in very good quality. The difference is
based on the registration of the numbers. The real Document will be
registered with the country's database so you can use it to travel to
any country of your choice or in the country, mean while the fake will
not be registered but can be used as well.
-fake USA(United States) passports,
-fake Australian passports,-fake Belgium passports,-fake Brazilian(Brazil) passports,-fake Canadian(Canada) passports,
-fake Finnish(Finland) passports,-Buy IELTS certificate in Australia-Buy IELTS certificate in Dubai-Buy IELTS certificate in India
-Buy IELTS certificate in Karachi,-Buy IELTS certificate in Malaysia-Buy IELTS certificate in Nepal-Buy IELTS certificate in uae
-Buy IELTS certificate in Singapore-Buy IELTS certificate online-Buy IELTS certificate UK

(((((( CONTACT US NOW ))))))

ICQ: [ 746820035 ]
WeChat ID:[ Bjwalker44 ]
Signal ID: [ Counterfeit44 ]
Threema ID: [ Z54BWMWT ]
Telegram: [ @Counterfeit403 ]
Phone Number Call/Text:..........[ Whats App: +14039080948 )
Whats-App Number:............[ Whats App: +14039080948 )
E-Mail Address:........[ Special-Papers@protonmail.ch ]

Thank you for taking your time to go trough my information,and i am waiting to here from you anytime soon.
E-Mail Your Questions and Comments [ Special-Papers@protonmail.ch ]. We are looking forward to receiving your inquiries and early receipt of your first orders!!!!!!!!!!!!!!! NO TIME WASTERS !!!!!!!!!!!!!!!
freeforex
Central, Egypt
Posts: 0
2 months ago
Apr 22, 2019 22:28
Best Free forex signals provider

best Free forex trading signals provider presents today free buying gold trading signals live
GOLD
BUY @ 1273
TP @ 1287
SL @ 1266
forex gold trading signals daily Description by words
it is preferred to buy XAU USD on FX gold market from level 1273
type order : Market Execution
Take profit TP @ 1287
Place stop loss SL @ 1266
Free forex gold trading signals and analysis
gold price move in down Trend from level 1346
zigzag Price pattern recognized today for daily free forex gold trading signals
A zigzag is subdivides into wave A Prices move down from level 1346 to 1280 , wave B retrace from level 1280 till 1324 , and wave C move down again from 1324 to 1273
Fibonacci expansion wave C equal 78 % of wave A and generate buy gold trading signals today
Important Support is 1270
and resistance level today is 1310
gold price formed bullish Candlestick pattern on hourly chart
Free forex signals analysis indicates to bullish Next move on very near term
best Free forex signals provider presents free buying GBP USD trading signals live
GBP USD
BUY @ 1.3030
TP @ 1.3100
SL @ 1.2990


free forex signals presents special offer
open trading account with one of the best forex brokers and GET FREE forex Signals via SMS, Email and WhatsApp
SIGN UP FOR A FREE TRIAL To Access FREE Forex Signals in the Members Area START FREE 30 DAYS TRIAL onhttps://www.freeforex-signals.com/



wali
Melbourne, Australia
Posts: 0
4 years ago
Jan 9, 2016 12:34
Excellent Ashraf.
You always impress me by the depth of your knowledge and analysis. Thank you indeed for this article. Really is an eye opener for the traders. Regards.
Shakeel